0 January PMIs: Disappointing

January 2013 Purchasing Managers Index (PMIs), the gauge for manufacturing activities, was disappointing for Asian countries, including Indonesia. While we expect improving global sentiment to provide some support toward growth in regional Asian manufacturing industries this year, our sense is that overall conditions are likely to remain weak ahead. We note that a similar upward trend in both PMIs and commodity prices also occurred in January and February, before starting to fizzle out in March/April 2012. 

The January manufacturing PMIs published suggest that Asian industries including China is weakening (exhibit 1), although this is not the case across the board. Last month’s PMI rose in Singapore, in line with improvements in Europe and the US. Elsewhere in the region, most PMIs remained below 50, a level which denotes contraction, reflecting of worse manufacturing conditions. For Indonesia, the country’s PMI dipped below 50 for the first time since its short establishment a few months ago. 

This also suggests that Indonesian factories were less optimistic of manufacturing prospects going forward. The figure followed 7 months of expansionary PMIs (i.e. a level above 50). That said, Indonesia’s recent weakness is not entirely surprising given some pull backs in regional PMIs as in China. This is particularly true given many regional PMIs have stalled, remaining at conditions well below their long term averages. In general, January’s PMI data remain consistent with our view that global economies are unlikely to rebound in a major way in the early part of 2013. 

Against such a backdrop, we think that Bank Indonesia will keep its loose monetary stance to ensure sufficient domestic growth for the remaining part of the year. The risk to this call would be if the government were to raise fuel prices this year, in turn forcing the central bank to raise interest rates in order to stem inflationary pressures. Despite January disappointing regional PMIs, current loose monetary policies in the region should provide some support towards the manufacturing sectors in most countries, in particular Indonesia, paving the way for our GDP growth to reach 6.4 percent in 2013, up from 6.2 percent in 2012.

The writer is senior vice president/head of research at PT Bahana Securities
source : the jakarta post